Interactive Brokers Group, Inc.’s (IBKR) fourth-quarter 2014 adjusted earnings per share of 12 cents beat the Zacks Consensus Estimate of 5 cents, driven by a decrease in expenses. Also, the figure came in 71% higher than the year-ago quarter earnings of 7 cents.
Results benefited from a substantial decline in operating expenses, partially offset by lower revenues. Notably, sustainable performance of the Electronic Brokerage segment, along with an improvement in daily average revenue trades (DARTs) were the other highlights of the quarter. However, dismal performance of the Market Making segment and Corporate acted as headwinds.
On a comprehensive basis, net income available to common shareholders in the reported quarter was $1.0 million or 2 cents per share, down from $4.6 million or 9 cents per share in the prior-year quarter.
For 2014, net income available to common shareholders (comprehensive basis) amounted to $29.5 million or 51 cents per share, a fall from $34.3 million or 67 cents per share in 2013.
Performance in Detail
Interactive Brokers’ net revenue declined 17% year over year to $208.1 million in the reported quarter. The fall was primarily due to lower trading gains and other loss, partly offset by an increase in commission and execution fees as well as interest income. Moreover, it came below the Zacks Consensus Estimate of $262.0 million.
For 2014, net revenue fell 3% year over year to $1,043.3 million.
Total non-interest expenses stood at $133.8 million, down 37% from the year-ago quarter. The decline was mainly attributable to lower employee compensation and benefits, execution and clearing costs as well as general and administrative expenses. However, these were slightly offset by a rise in communications, and occupancy, depreciation and amortization expenses.
Income before income taxes grew 91% from the year-ago quarter to $74.3 million. Similarly, pre-tax profit margin improved to 36% from 16% in the prior-year quarter.
As of Dec 31, 2014, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $16.7 billion compared with $15.2 billion as of Dec 31, 2013. As of Dec 31, 2014, total assets grew 15% year over year to $41.6 billion.
As of Dec 31, 2014, total equity rose 2% to $5.2 billion versus the Dec 31, 2013 figure.
Quarterly Segmental Performance
Market Making: Net revenue came in at $53.6 million, down 30% from the prior-year quarter. Also, pre-tax income declined 49% year over year to $15.1 million. Further, pre-tax margin was 28%, compared with 39% in the year-ago quarter. Weak performance of the segment was result of a prevalent competitive situation and lower average volatility during the quarter.
Electronic Brokerage: Net revenue improved 23% year over year to $261.5 million. Pre-tax income escalated substantially to $166.9 million from $49.2 million. Further, pre-tax profit margin rose to 64% from 23% in the prior-year quarter. Additionally, total DARTs for cleared-only customers increased 25% year over year to 564,000.
Notably, Corporate reported huge negative revenues of $107 million, compared with negative revenues of $38.3 million in the year-ago quarter.
Our Take
We believe Interactive Brokers is well positioned for future growth, given its better-than-peer positioning, adoption of technology, spreading of the equity culture and optimization of resource allocation on global electronic networks. Also, the company’s healthy capital base and liquid balance sheet will facilitate its expansion going forward.
However, the increasing competitive environment and Market Making segment’s high sensitivity to fluctuating volatility are bound to weigh on the company’s performance in the near term.
Interactive Brokers, currently, sports a Zacks Rank #1 (Strong Buy).
Among other investment brokers, E*TRADE Financial Corp. (ETFC) is slated to report on Jan 22; KCG Holdings, Inc. (KCG) is scheduled to report on Jan 30; while Cowen Group, Inc. (COWN) is expected to announce results on Feb 26.
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